Investing.com — Parsons Corp . (NYSE:PSN) shares tumbled 9.5% as the market reacted to a downgrade from analysts at William Blair. The firm altered its rating on the defense and intelligence technology provider due to concerns over a key U.S. State Department contract.
The downgrade was prompted by elevated risks associated with a significant, yet classified, humanitarian aid contract with the U.S. State Department, which is pending renewal. William Blair analyst Louis DiPalma noted, “Even though Parsons has been executing exceptionally well, we are downgrading our rating on Parsons shares to Market Perform to reflect elevated risk associated with the company’s classified humanitarian aid U.S. State Department contract that is up for renewal (an option extension) in the first quarter.”
DiPalma highlighted the uncertainty surrounding the contract in light of recent policy shifts indicated by the new administration, which could potentially move away from humanitarian aid. This contract is estimated to represent about 10% of Parsons’ total revenue, thereby posing a significant risk to the company’s financial outlook.
Despite the downgrade, the analyst acknowledged Parsons’ strong alignment with secular and policy trends, as well as its successful execution over the past two years. The company’s stock has seen a substantial increase of over 200% during this period under CEO Carey Smith’s leadership. Parsons has been recognized for its rapid growth, driven by high demand for its security technology, infrastructure project wins funded by the Infrastructure Investment and Jobs Act (IIJA), and major projects in the Middle East.
Parsons has secured contracts for several major U.S. transportation infrastructure projects and is a leading program manager in the Middle East, where it is involved with significant investments in infrastructure. These factors have contributed to Parsons trading at a high multiple within the sector.
However, the immediate concern over the State Department contract and its potential impact on the company’s revenue has overshadowed these positive aspects, leading to the current decline in stock value. Investors will be closely monitoring the situation as more information becomes available regarding the contract’s renewal.
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